Accelerating Economic Growth with a Simplified Tax System - Dr. Jayantilal Bhandari
It is also notable that in August 2024, a committee headed by the Chief Income Tax Commissioner, VK Gupta, was formed to simplify the Income Tax Act. This committee is working rapidly to rationalize tax exemptions, improve tax calculation methods to make them world-class, and reduce complexities in the appeals process. The committee is reviewing recommendations from tax experts and various bodies. It is worth mentioning that around 90 sections of the Income Tax Act, 1961 have become irrelevant. These provisions, including those related to special economic zones, telecommunications, capital gains, tax exemptions, and deductions, are no longer effective. The committee is moving towards simplifying tax deduction at source (TDS) and tax collection at source (TCS) systems, similar to customs laws, and is working on creating a comprehensive schedule of rates. This will significantly reduce legal complexities and litigation, and the tax deduction process will become more straightforward and transparent. It is expected that the VK Gupta Committee will soon present its report, and based on this, a draft of the new Income Tax Bill will be prepared with the assistance of the Ministry of Law.
Undoubtedly, the pace of reforms in both direct and indirect taxes over the last decade has strengthened the country's economy. If we look at the history of income tax in India, it began in 1922 under British rule. The Income Tax Act was enacted in 1961, but this Act had its own implementation complexities, and the numerous exemptions and deductions further increased the challenges in tax compliance. Although small reforms have been made to address these shortcomings, the significant reforms introduced in the last decade have benefited taxpayers and helped increase the number of taxpayers. These reforms include the introduction of faceless appeals nationwide from September 25, 2020, the taxpayer charter introduced in 2019, and faceless assessments. In addition, a non-filers monitoring system (NMS) identifies individuals who have made high-value transactions but have not filed income tax returns. In the past 10 years, income tax collections have increased by around 182%. In 2023-24, personal income tax collections grew nearly fourfold to INR 10.45 lakh crore. It is also notable that over 8.09 crore income tax returns were filed in the 2023-24 assessment year. The outlook for the current fiscal year (2024-25) shows an even higher number of tax returns and increased income tax collections.
Similarly, the Goods and Services Tax (GST), considered a historic reform in the indirect tax system, was implemented from July 1, 2017. It integrated 17 central and state taxes, along with approximately 23 different types of surcharges, benefiting manufacturers, traders, exporters, and the general public. Before the implementation of GST, indirect tax collections (central excise, service tax, customs, etc.) in the 2016-17 fiscal year were around INR 8.63 lakh crore. After the introduction of GST, tax collections have been growing rapidly. For the fiscal year 2023-24, GST collections reached INR 20.18 lakh crore, marking an 11.7% increase compared to the previous year. Between April and November 2024, GST collections for the current fiscal year have risen by 9% to INR 14.56 lakh crore compared to the same period in the previous year.
There is no doubt that India’s rapidly growing economy, with its expanding industries, businesses, services sector, stock market, and the purchasing power of the middle class, has led to a significant increase in tax collections. This surge in tax revenue is helping the government improve infrastructure, social services, and the overall quality of life. Increased tax revenue in the government's coffers not only aids in the economic rebuilding of the country but also holds the government accountable to its taxpayers. Undoubtedly, the tax reforms in India have led to remarkable growth in both income tax and GST collections. However, the tax-to-GDP ratio in India is still expected to reach only 11.7% in the 2024-25 fiscal year, which is lower than that of many developing countries. Therefore, there are still significant opportunities to expand the tax base for both income tax and GST.
Since the country has set the goal of becoming a developed India by 2047, continuous increases in tax collections, along with reforms in the tax system, will be crucial to moving towards that goal. The use of technology will be vital to accelerate tax revenue growth. It would be appropriate for the VK Gupta Committee to complete its report soon, paying attention to reducing the exemption limits for personal income tax, and ensuring that exemptions remain unchanged in the near future. The committee should also focus on increasing the number of taxpayers and making the tax system more equitable. Additionally, a strategy for simplifying the income tax system from various perspectives should be presented. Similarly, the complexity of GST should be reduced to make it more efficient and effective. The use of new technology will improve GST compliance, leading to higher tax collections. Furthermore, the government should continue its effective campaign against GST evasion, as some businesses still exploit fake bills to claim input tax credits. Effective administrative reforms should be introduced to prevent tax evasion. There should also be a rationalization of GST rates and slabs. It is time to ensure relief on the 18% GST on life and health insurance purchases, and decisions should be taken regarding the GST on quick-commerce companies. Moreover, petroleum products, land, and real estate should also be brought under the GST regime. Certainly, such efforts will lead to higher income from both income tax and GST, contribute to the country’s GDP, and help the government move strategically towards a developed India.
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